6 Ways a Fractional CFO Can Improve Small Business Cash Flow

Fractional CFO Cash Flow

Many small-to-medium-sized businesses (SMBs) don’t have an accounting staff. In some cases, they may have a controller or a CPA partner that handles the bookkeeping on a bi-weekly or monthly basis. Outsourcing financial operations tends to be more cost efficient than handling them in-house—not to mention more accurate. As they grow, many SMBs need to weigh the cost of bringing on a fractional Chief Financial Officer (CFO) as well.

Fractional CFOs do much more than oversee the general accounting and bookkeeping for the business. Instead, they’re focused on the financial operations of the company. This means looking for ways to strengthen profitability, reduce debt load and, most important, improve cash flow. These seasoned experts have a variety of levers they can pull, and it’s often wise for small businesses to tap into CFO expertise as they approach periods of growth and expansion.

If cash flow is holding your small business back, it’s time to put a CFO to the task of improving it. Here’s a look at six ways they’re likely to approach the problem, and the opportunities that exist for businesses.

1. Renegotiate AP/AR terms

Many small businesses get locked into accounts payable (AP) and accounts receivable (AR) terms that eventually come to hamper them. When first working with a supplier, NET15 is standard for AP, while settling for NET30 or NET45 when it comes to AR. The result is a recipe for cash flow imbalance. If you’re sending money out the door two or three times as fast as it’s coming in, you’re handicapping your growth. A fractional CFO can identify inefficiencies and work to renegotiate AP/AR terms, to bring balance back to cash flow.

2. Improve invoicing policy

Does your business batch invoices weekly? Every two weeks? Monthly? This is common practice among small companies that pay for a la carte accounting services or want to minimize their accounting expenses. Unfortunately, it’s also hampering cash inflows. Every extra day an invoice sits idle is an extra day the company waits to receive revenue. A CFO can help create an invoicing process or policy that expedites invoice generation and delivery, to improve cash inflows.

3. Diversify suppliers

Supplier costs are among the most burdening for small businesses. Supplier diversification can help to bring down these costs—or prevent additional costs when supply costs increase due to extenuating factors. CFOs can help identify cost saving opportunities and set favorable terms with new suppliers and vendors. The result is a more efficient procurement process that’s more predictable from a cost allocation and management standpoint.

4. Evaluate pricing models

What are you selling your product or service for? What are the COGS associated with it? What does your current revenue model look like, and are you generating enough to promote operations growth? As businesses grow, it becomes important to reevaluate pricing models. A fractional CFO is well-equipped to run the numbers and model costs, to help the business better-understand its position and any adjustments that may be required to improve cash flow and profitability. This also includes looking at inventory, to determine where write-downs may be possible.

5. Financial assessments

When’s the last time you looked at cash outflows? Where is your money going? A CFO can come in and take an objective look at short-term debt obligations and operational expenses to assess where there are opportunities for improvement. For example, should you pay extra against the debt on your line of credit? Would it be smart to depreciate the cost of your equipment? Is there an asset on the balance sheet that’s improperly valued and costing you money, as opposed to generating ROI? An attentive CFO will comb the balance sheet and look at cash outflows to make financial assessments about where to improve cash flow, to keep more cash in the business.

6. Automate accounting

One of the most important improvements a CFO can bring to a business is the prospect of accounting automations. Automation is often the gateway to improvement, which equates to better cash flows when structured accordingly. For example, automating invoice generation, account reconciliation, report generation and more are all simple solutions to common clerical duties—all of which can impact how a company identifies and improves cash flow inequities. Whether it’s the shift to more robust accounting software or utilization of features offered by a current platform, automation is imperative.

Fractional CFOs pay for themselves

Given improvements to a business’ cash flow situation, a fractional CFO can quickly pay for themselves. Businesses benefit from a high level of oversight that only c-suite level professionals can bring to cash flow analysis. Moreover, the choice to work with a fractional CFO means not burdening the cost of an in-house executive, while still benefitting from the sometimes-game-changing improvements they can recommend regarding cash flow.

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